Punj Lloyd Limited, New Delhi V. ACIT, New Delhi

ITA 5256/DEL/2010

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 6324 (ITAT-DELHI)
• Duration Of Justice: 6 year(s) 3 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-03-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 09-03-2017
• Assessment Year: 2006-2007
• Appeal Filed On: 25-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: F R MEENA
• Keywords: Opportunity of being heard
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F , NEW DELHI BEFORE SHRI S.K. YADAV , JUDICIAL MEMBER AND SHRI A.N. MISHRA, ACCOUNTANT MEMBER ITA NO. 5256 /DEL/201 0 A SSESSMENT YEAR: 2006 - 07 PUNJ LLOYD LIMITED 17 - 18, NEHRU PLACE NEW DELHI PIN: AAACP03 05Q VS. ACIT CIRCLE 14(1), C.R. BUILDING NEW DELHI (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI AKSHAT JAIN , C.A. REVENUE BY: SHRI. F.R. MEENA , SR. D.R. DATE OF HEARING 09 / 03 /201 7 DATE OF PRONOUNCEMENT 17 /03 /201 7 WITH ITA N O. 5655 /DEL/201 0 ASSESSMENT YEAR: 2006 - 07 ACIT CENTRAL CIRCLE - 2, ROOM NO. 323, 3 RD FLOOR, ARA CENTRE, JHANDEWALAN EXTN, NEW DELHI VS. PUNJ LLOYD LIMITED 17 - 18, NEHRU PLACE NEW DELHI PIN: AAACP0305Q (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI. F.R. MEENA, SR. D.R. REVENUE BY: SHRI AKSHAT JAIN, C.A. DATE OF HEARING 09 / 03 /201 7 DATE OF PRONOUNCEMENT 17 /03 /201 7 2 ITA NO. 5256 /DEL/201 0 ITA NO. 5655/DEL/2010 O R D E R PER S.K. YADAV A .M : 1. THESE APPEALS ARE PREFER RED BY THE ASSESSEE AS WELL AS THE REVENUE AGAINST THE ORDER OF THE CIT(A) PERTAINING TO THE ASSESSMENT YEAR 2006 - 07 . SINCE TH ESE APPEALS WERE HEARD TOGETHER THE SAME ARE BEING DISPOSED OF THROUGH THIS CONSOLIDATED ORDER. 2. WE, HOWEVER, PREFER TO ADJUDICATE THEM ONE AFTER THE OTHER. ITA NO. 5256 /DEL/2012 (A.Y . 2006 - 07 ) 3. THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) INTER ALIA ON FOLLOWING GROUNDS: I. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN THE LAW, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) (HEREIN REFERRED TO AS THE CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF PRIOR PERIOD OF EXPENSES OF RS. 37,74,66/ - . II. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, WHILE PASSING THE ORDER THE LD. CIT(A) HAD NOT CONSIDERED THE ORDER PASSED BY THE JURSIDICATION HON B LE HIGH COURT DELHI IN THE CASE OF COMMISSIONER OF INCOME TAX VS. JAGATJIT INDUSTRIES LTD WHICH IS SQUARELY APPLICABLE TO THE APPELLANT CASE. III. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LD. CIT(A) ERRED IN ISSUING DIRECTION TO THE ASS ESSING OFFICER TO RECOMPUTED THE DISALLOWANCE UNDER RULE 8D. 4. WITH RESPECT TO GROUND NO. 1, THE LEARNED COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT ASSESSEE HAS MADE A DISALLOWANCE OF RS. 37,34,866/ - ON ACCOUNT OF PRIOR PERIOD EXPENSES BOOKED IN THIS Y EAR. 3 ITA NO. 5256 /DEL/201 0 ITA NO. 5655/DEL/2010 THE LEARNED COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF ENGINEERING CONSTRUCTIONS AND INTERNET PROVIDER THROUGHOUT THE COUNTRY . S INCE IT HAS DIFFERENT BRANCHES AT DIFFERENT STATION S , T HE BILLS WERE RECEIVED BY TH E RESPECTIVE STATIONS AND LATER ON IT WAS FORWARDED TO THE HEAD OFFICE . A S AND WHEN IT WAS RECEIVED IN THE HEAD OFFICE IT WAS PROCESSED AND ON VERIFICATION THEY WERE TAKEN INTO ACCOUNT. SOMETIMES IT TAKES TIME . T HEREFORE THE BILLS RECEIVED ON DIFFERENT BRA NCHES OF THE ASSESSEE ARE NOT BOOKED AT THE RELEVANT POINT OF TIME. HE FURTHER INVITED OUR ATTENTION THAT THERE WERE FIVE INVOICES WHICH WERE RECEIVED BY DIFFERENT BRANCHES DURING THE MONTH OF NOVEMBER, 2004 AND FEBRUARY 2005 BUT THE SAME COULD NOT BE RECO RDED IN THE BOOKS OF ACCOUNTS OF THE RELEVANT YEAR AS IT WAS RECEIVED BY THE HEAD OFFICE IN THE SUCCEEDING YEAR . THESE FACTS WERE NOT VERIFIED BY THE ASSESSING OFFICER AND HE MADE A DISALLOWANCE OF RS. 37,34,866/ - ON ACCOUNT OF PRIOR PERIOD OF EXPENSES. 5. THOUGH THESE FACTS WERE BROUGHT TO THE NOTICE OF CIT(A) BUT THE CIT(A) DID NOT EXAMINE THESE ASPECTS AND HE CONFIRMED THE ADDITIONS. LEARNED COUNSEL FOR THE ASSESSEE FURTHER CONTENDED THAT IT WAS THE PRACTICE OF THE ASSESSEE TO BOOK THE INVOICES AMOUNT AF TER ITS PROCESSING AND VERIFICATION , WHICH TAKES TIME . TH ERE FORE THE SAID DISALLOWANCE IS UNCALLED FOR. 6. THE LEARNED DR ON THE OTHER HAND HAS PLACED THE HEAVY RELIANCE UPON THE ORDER OF THE CIT(A). 7. HAVING CAREFULLY EXAMINED THE MATERIAL AVAILABLE ON RECORD AND IN THE LIGHT OF RIVAL SUBMISSIONS, WE FIND THAT WHEN THE ASSESSEE HAS BEEN FOLLOWING THE SAME TYPE OF PRACTICE IN THE PAST YEAR, THE EXPLANATION FURNISHED BY THE ASSESSEE SHOULD HAVE BEEN EXAMINED BY 4 ITA NO. 5256 /DEL/201 0 ITA NO. 5655/DEL/2010 THE ASSESSING OFFICER. IF REASONABLE EXPLANAT ION S ARE FURNISHED BY THE ASSESSEE, THE CLAIM SHOULD HAVE BEEN ALLOWED. BUT WE FIND THAT NONE OF THE LOWER AUTHORITIES HAVE EXAMINE D THESE ASPECTS . WE ARE, THEREFORE, OF THE VIEW THAT THIS ISSUE REQUIRES FRESH ADJUDICATION AND WE ACCORDINGLY SET ASIDE THE ORDER OF THE CIT(A) AND RESTORE THE MATTER TO THE FILE OF ASSESSING OFFICER WITH A DIRECTION TO RE - EXAMINE THE ISSUE AFRESH AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 8. THE OTHER GROUNDS RELATE TO A DIRECTION TO THE CIT(A) FOR COMPUTATION OF DISALLOWANCE AS PER RULE 8D OF THE RULES. IN THIS REGARD, THE LEARNED COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT RULE 8D WAS BROUGHT ON STATUTE WITH EFFECT FROM 2007 - 08. IT WAS FURTHER CONTENDED THAT IT HAS BEEN REPEATEDLY HELD THAT THE COMPUTATION OF DISALLOWANCE U/S 14A WOULD BE DONE AS PER RULE 8D WITH EFFECT FROM ASSESSMENT YEAR 2007 - 08. SINCE THE ASSESSMENT YEAR INVOLVED IN 2007 - 08 RULE 8D WOULD NOT APPLY. 9. THE LEARNED DR PLACED RELIANCE UPON THE ORDER OF THE CIT(A). 10. HAVING CAREFULLY EXAMIN ED THE ORDER OF THE LOWER AUTHORITIES IN THE RIVAL SUBMISSIONS AND CASE LAW REFERRED TO BY THE ASSESSEE IN THE CASE OF MAXOPP INVESTMENT LTD VS. COMMISSIONER OF INCOME TAX, NEW DELHI, 347 ITR 272 , W E FIND THAT UNDISPUTEDLY IT HAS BEEN REPEATEDLY HELD THAT RULE 8D WOULD APPLY FROM THE ASSESSMENT YEAR 2007 - 08. SINCE THE COMPUTATION OF DISALLOWANCE AS PER RULE 8D CANNOT BE DONE UPTO 2006 - 07, WE FIND NO MERIT IN THE DIRECTION OF THE CIT(A). 5 ITA NO. 5256 /DEL/201 0 ITA NO. 5655/DEL/2010 11. HOWEVER, WHERE THE ASSESSEE HAS RECEIVED THE EXEMPTE D INCOME, SOME DISALLOWANCE ARE TO BE MADE FOR WHICH ASSESSING OFFICER IS DIRECTED TO MAKE REASONABLE DISALLOWANCE AFTER TAKING INTO ACCOUNT THE CORRESPONDING EXPENDITURE INCURRED TOWARDS THE EXEMPTED INCOME. 12. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE CIT(A) IN THIS REGARD AND DIRECT THE AO TO MAKE A REASONABLE DISALLOWANCE HAVING TAKEN INTO ACCOUNT THE CORRESPONDING EXPENDITURE INCURRED TOWARDS THE EXEMPTED INCOME. 13. ACCORDINGLY, THE APPEAL OF THE ASSESSEE IS DISPOSED OF. ITA NO. 5655 /DEL/201 0 (A.Y. 2006 - 07) 1 . THI S APPEAL IS PREFERRED BY THE REVENUE ASSAILING THE ORDER OF THE CIT(A) INTER ALIA ON FOLLOWING GROUNDS: I. ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS. 34.19 LACS MADE BY THE AO ON ACCOUNT OF INTEREST GIVEN IN RESPECT OF PURCHASED OF FIXED ASSETS. II. ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN LAW AND ON THE FACTS IN DIRECTING THE AO TO RECOMPUTED THE DISALLOWANCE OF PROPORTIONATE EXPENSES U/S 14A R EAD WITH RULE 8D. 2 . A PROPOSED GROUND NO. 1, THE LEARNED COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT THE ASSESSING OFFICER HAS MADE THE DISALLOWANCE OF PAYMENT OF INTEREST ON NOTIONAL BASIS . IT WAS CONTENDED THAT 6 ITA NO. 5256 /DEL/201 0 ITA NO. 5655/DEL/2010 WHATEVER FIXED ASSETS WERE PURCHASE D, THEY ARE PURCHASED OUT OF THE SURPLUS FUNDS OF THE ASSESSEE AND NOT FROM THE BORROWED FUNDS. DESPITE ALL THESE FACTS , ASSESSING OFFICER HAS MADE THE DISALLOWANCES OF INTEREST ON NOTIONAL BASIS WHICH IS NOT PERMISSIBLE IN THE EYES OF LAW. 3 . BEFORE THE CIT(A) , ASSESSEE HAS EXPLAINED THESE FACT AND CIT(A) HAS APPRECIATED THE CONTENTIONS OF THE ASSESSEE AND HAS RECORDED IT S FINDING THAT THE FIX ASSETS WERE NOT PURCHASED OUT OF THE BORROWED FUNDS. HE, ACCORDINGLY DELETED THE DISALLOWANCE. 4 . NOW THE REVENUE IS AGGRIEVED BY THE ORDER OF THE CIT(A) AND IS BEFORE US , BUT DURING THE COURSE OF HEARING, THE LEARNED DR COULD NOT EXPLAIN AS TO HOW THE DISALLOWANCE ON NOTIONAL BASIS ARE SUSTAINABLE. 5 . THE LEARNED COUNSEL FOR THE ASSESSEE ON THE OTHER HAND HAS SUBMITTED THAT SINCE THE ASSESSEE HAS NOT BORROWED ANY FUNDS TO PURCHASE THE FIX ASSETS , TH ERE IS N O QUESTION OF PAYMENT OF INTEREST THEREON . W HEN THE ASSESSEE HAS NOT BOOKED ANY EXPENDITURE ON ACCOUNT OF PAYMENT OF INTEREST ON BORROWED FUNDS TO ACQUIRE THE FIX ASSETS , NO DISALLOWANCE CAN BE MADE ON NOTIONAL BASIS. IN THE LIGHT OF THESE, WE ARE OF THE VIEW THAT THE CIT(A) HAS RIGHTLY DELETED THE DISALLOWANCE , WHICH WAS NOT SUSTAINABLE IN THE EYES OF LAW . WE ACCORDINGLY CONFIRM THE ORDER OF CIT(A) IN THIS REGARD. 6 . NEXT GROUND RELATING TO THE DISALLOWANCE U/S 14A OF THE ACT. THIS ISSUE HAS ALREADY BEEN ADJUDICATED BY US IN THE FOREGOING APPEAL . FOLLOWING THE SAME, WE RESTORE THE ISSUE TO THE ASSESSING OFFICER TO COMPUTE THE REASONABLE DISALLOWA NCES OF EXPENDITURE INCURRED TOWARDS THE EXEMPTED INCOME. 7 ITA NO. 5256 /DEL/201 0 ITA NO. 5655/DEL/2010 7 . ACCORDINGLY, APPEAL OF THE ASSESSEE AND THE REVENUE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 17 TH DAY OF MARCH, , 201 7 . SD/ - SD/ - SD/ - ( A N MISHRA ) ( S K YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 17 - 03 - 2017 SH COPY OF ORDER TO : - 1 ) THE APPELLANT; 2 ) THE RESPONDENT; 3 ) THE DRP - I , NEW DELHI ; 4 ) THE DR, I.T.A.T., NEW DELHI ; BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT , NEW DELHI 8 ITA NO. 5256 /DEL/201 0 ITA NO. 5655/DEL/2010 S.NO. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 16 .1 2 .2016 SR. PS/PS 2 DRAFT PLACED BEFORE AUTHOR .1 2 .2016 SR. PS/PS 3 DRA FT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/AM 5 APPROVED DRAFT COMES TO THE SR. PS/PS .1 2 .2016 SR. PS/PS 6 KEPT FOR PRONOUNCEMENT ON .1 2 .2016 SR. PS/PS 7 FILE SENT TO BENCH CLERK .1 2 .2016 S R. PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE ON WHICH FILE GOES TO THE A.R. 10 DATE OF DISPATCH OF ORDER